Obamacare's tax season: Easy task for many, but...
The first tax season to feature new Obamacare-related questions and forms comes to a close Wednesday, with most people having no problem complying with the new rules.
But ignorance about details of the law and its tax implications remains relatively high, according to a new survey. And the low response so far to a program that allows certain people to sign up for Obamacare past the open enrollment deadline may increase pressure next year on officials to offer another tax season grace period for sign-ups.
"With only one day remaining before the tax filing deadline, we continue to focus on increasing public awareness and providing the resources and assistance consumers may need," said an Obama administration spokesman.
The government is working with local nonprofit organizations and tax preparers to help consumers and is using search advertising to direct consumers to information about exemptions and the special enrollment period available on HealthCare.gov.
The Obamacare rule that affects the most people is the requirement that all federal tax filers this season disclose whether they had some kind of health coverage last year.
If you did-either through work-based health insurance, privately purchased plans such as Obamacare-exchange insurance, or government-run programs like Medicare and Medicaid-that will be the last Obamcare-related issue you'll have to deal with on your tax return.
"For the vast majority of the taxpayers as it relates to the Affordable Care Act, all they need to do is check a box," said Mark Steber, chief tax officer of Jackson Hewitt Tax Service .
That's because most people have some form of health coverage.
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The Centers for Medicare and Medicaid Services, in a fact sheet about tax season, said that "about 75 percent" of all filers will only have to check the box indicating they have coverage.
According to a survey released Monday, among uninsured adults filing a tax return this season, almost 29 percent said they had heard nothing at all about that requirement to report their insurance status when they file. Another 18.7 percent said they had heard little about that rule, according to the Health Reform Monitoring Survey funded by the Urban League and the Robert Wood Johnson Foundation.
Filers who lacked coverage, or who bought Obamacare insurance with subsidies last year, will have somewhat more complicated tasks on their returns. But many of them-90 percent or so according to the Internal Revenue Service -file using tax-preparation software or have professional assistance, which will make those tasks much easier than if they had filed by hand.
For people who did not have coverage, there are two possible scenarios.
The first is to check to see if you qualify for an exemption from the ACA requirement that nearly all adults have coverage or pay a fine.
"There are over 30 exemptions," noted Debra Hammer, spokeswoman for TurboTax, the tax preparation software sold by Intuit (NASDAQ: INTU).
Exemptions include having very low income, having been insured for more than nine months during the year, being part of a Native American tribe, filing for bankruptcy recently and having a close family member die during the year. The IRS has a fact sheet on exemptions here.
Up to 30 million people are expected to qualify for an exemption this tax season. (Tweet This)
But between 3 million and 6 million people are expected to be subject to the penalty for not having health coverage. That penalty is the higher of $95 per adult or 1 percent of taxable household income.
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That penalty significantly rises for 2015. The penalty for not having insurance this year-which will actually be paid next tax season-is the higher of $325 per adult or 2 percent of household income.
As of late December, more than 4 out of every 10 uninsured adults did not know about the Obamacare penalty, according to the Health Reform Monitoring Survey.
That level of ignorance led the Obama administration two months ago to announce that it would hold a special enrollment period for Obamacare plans for those who learned of the penalty when they did their taxes. The grace period is occurring in all but three states as some state health exchanges opted not to offer that relief.
"People should make sure they take advantage of that if they didn't already purchase health insurance," said Lisa Greene-Lewis, a TurboTax expert, and certified public accountant.
However, data released to date show that relatively few people had taken advantage of the offer, which in many places will continue for several weeks after the tax filing deadline. Just 36,000 people had signed up during the special enrollment period on HealthCare.gov, the federal marketplace that now serves 37 states, according to a news release on April 1. A CMS spokesman said he had no updated information about special enrollment tallies.
Millions of other people who did buy Obamacare plans last year through a government-run exchange such as HealthCare.gov, will have to figure out if the government subsidies they received during the year to help pay for their plan's premiums were the right amount.
Nearly 9 in 10 Obamacare customers get such premiums, whose value is linked to a person's estimated income for the year. But just an estimated 5 percent of those people will have gotten the exact amount of subsidies they deserved.
About half of such customers will owe a repayment for at least some of the subsidies they received because their actual incomes were higher than they had estimated when they applied for insurance. Another estimated 45 percent will get extra subsidy money back because their annual incomes ended up being less than they had estimated.
The IRS noted that even in cases where people owe subsidies back, a large majority of them will still get a net refund from the government after they file their taxes. Just a small percentage will have their refund wiped out by their subsidy repayment. The average refund this tax season is $2,900.
Earlier this year, the Obama administration revealed that there were errors on 820,000 so-called 1095-A forms sent out to subsidy-receiving customers of HealthCare.gov.
Those forms detail a customer's monthly premium, the amount they received in subsidies each month and the premium price of a so-called benchmark plan in the region where they live. The benchmark plan's price is used to calculate how much a customer receives in subsidies, and how much of that tax credit they need to claim on their income tax return.
The errors on the forms related to the prices of those benchmark plans. Updated forms, with corrected information, were sent out to all but about 1,500 of the affected customers, according to the administration, which said the remaining forms required additional casework.
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The IRS has offered some relief to customers of HealthCare.gov and state-run exchanges who had those kinds of problems, and others, with their 1095-A forms. Details of that relief can be found here.
Also, the IRS has told taxpayers that if they were unable to file an accurate tax return by Wednesday due to problems on those forms, they should file a Form 4868 to request an automatic extension.
Anyone who "received an incorrect Form 1095-A, and filed his or her tax return based on that form does not need to file an amended tax return," according to an IRS spokeswoman. "The IRS will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected forms. Some individuals may choose to file amended returns. Individuals also may want to consult with their tax preparers to determine if they would benefit from amending."
U.S. Sen. Lamar Alexander , R-Tenn., used the occasion of the deadline to blast the Affordable Care Act.
"For most American workers, Tax Day is a frustrating reminder that our federal government is trying to do too much-and it's increasingly dipping into middle-class family budgets to pay for all of its spending," Alexander said. "Obamacare is a prime example. This is the first Tax Day on which millions of Americans will learn the hard way that Obamacare raised taxes in addition to premiums and other health-care costs."
But President Barack Obama last week said he gave his signature health-care reform law an "8 out of 10." His administration has repeatedly touted the benefits of the law, saying it made insurance affordable to millions of people, many of whom were either priced out of the individual insurance market before, or weren't able to enroll because they had pre-existing conditions.
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